The US Treasury and the Internal Revenue Service last Thursday issued updated procedures for taxpayers to use in requesting an Advance Pricing Agreement.
An APA is an agreement between a taxpayer and the IRS (and in the case of a bilateral or multilateral APA, a foreign tax authority) in which a method for determining the transfer prices for specified cross-border transactions between affiliated companies is established in advance of the transactions.
The updated procedures clarify and expand upon procedural guidance issued in 1996 and 1998. In particular, the procedures encourage bilateral and multilateral APAs, where possible, so as to avoid potential for double taxation.
In addition, the procedures set out expectations regarding the term of APAs in order to encourage agreements that are predominately prospective in nature, and provide detailed guidance regarding the contents of an APA request so that the process can be completed in an efficient manner.
Commenting on the new procedures, Acting Assistant Secretary for Tax Policy Gregory Jenner stated: "The prospective nature of APAs allows taxpayers, the IRS, and foreign tax authorities to work toward a mutual agreement in a cooperative manner, providing an alternative method of avoiding and resolving disputes efficiently."
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